Re-boot for Central and Eastern European economies

Growth in Central and Eastern European economies has slowed in recent years - and its rewards are spread unevenly. An EU-funded project studied how economic, social and environmental policies could work together to make these economies fairer and more sustainable.

Central and Eastern European countries (CEECs) that joined the EU between 2004 and 2007 saw their economies grow fast after accession. But much of the growth was concentrated among urban areas and better-educated citizens. And with its base in low production costs rather than innovative products and services, the growth proved fragile in most countries during the 2008-2009 financial crisis.

To find out how CEECs could achieve their full growth potential, the GRINCOH project investigated different economic, social and institutional aspects of their development. Its results suggest that more inclusive and stable growth would come from policies supporting local potential for innovation, and tailored to different regions, which would also allow more efficient use of imported innovation than has been the case up to now.

Project coordinator Grzegorz Gorzelak of Poland’s Uniwersytet Warszawski says there is a new understanding in the EU institutions that the traditional approach to cohesion – which targets key regions, welfare and uniform development goals – eventually leads to an inability to grow. “GRINCOH looked at how to reform cohesion policy after 2020.”

Research focused on the 10 CEECs – Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. Although there are differences in development between and within these countries, they have much in common.

“They joined as a group and came from a socialist tradition that is different from the economic tradition of the older Member States,” explains Gorzelak. “Factors that initially allowed fast growth are now almost fully exploited – these countries need to find changes of direction to compete in a world economy driven by innovation.”

Evidence-driven policy

In the first 18 months of the project, policy and economic specialists from both Eastern and Western Europe researched changes in these countries that were linked to joining the EU. They gathered evidence from a wide spectrum of academic literature and their own case studies of past EU programmes for the CEECs.

In particular, the project focused on structural changes, international trade and foreign investment (an important source of growth for the CEECs), innovation and entrepreneurship, labour markets and skills, social cohesion and welfare, regional development, institutions, cohesion policy and development scenarios.

In the second half of the project, researchers tested how different political frameworks, institutional conditions and development strategies could impact growth up to 2020. For this, they used the MAAST 3 macro-regional model, developed by the Politecnico di Milano, one of the project partners.

“We concluded that one policy does not fit all cases; policies should be adapted more to suit the type of region,” says Gorzelak. He cites focusing more on secondary cities rather than developed, main cities as an example of a targeted policy.

However, the project also showed that the different regions of the EU impact each other, which should be taken into account in policy formation for the whole of the European Union. And GRINCOH recommends a longer-term focus rather than “fire-fighting”, along with stronger coordination of thematic policies, including those on education, industry and social policy.

Help to turn R&D into new businesses and prepare people for jobs would improve cohesion, while continued reform of institutions to bring them in line with EU norms is also important.

Indeed, stronger inter-regional scientific networks and home-grown potential for adopting – and efficiently adapting and developing – imported innovation has more potential to boost growth than hunting for foreign investment, which often adds little new knowledge to local economies, researchers found.

Next steps

“Our findings have been well-received by the Commission’s DG Regional Policy,” says Gorzelak. “They are launching, in cooperation with ERSA, a series of lectures for scientists and policy-makers in October or November 2015 in Brussels.”

GRINCOH’s research is publicly available on the project website in a series of presentations, detailed working papers and case studies, with a possible book in the pipeline, he adds. Each of the consortium’s 12 institutes is continuing its research, with further collaboration possible.

“We didn’t reinvent the wheel,” he concludes. “But we provided evidence for our concept of how to achieve cohesion – understood as growth, innovation and competitiveness, and not simply traditionally as convergence.”